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- Bitcoin: Part 2 of 2 - A Fundamental Risk Analysis
As an investor, accounting for all variables (positive and negative) with objectivity is the most effective means of ensuring effective decisions, To buy or not to buy. To sell of not to sell. With so many risks facing this relatively new asset class, being alert and ready for anything is crucial. This is the best way to minimize our downside risk by openly analyzing the risk factors facing Bitcoin, As these risks expand or regress, we can either go more aggressive into a bitcoin position or secure profit before it turns. Be objective and read with purpose, put aside any bias and be critical. Too much irrational psychology is driving this insane price action. This does not take away the fact that bitcoin can very much continue to see increase price action, but it clearly has many risks not being accounted for and discussed. Being an investor is about knowing the risks and discussing them to keep them on our radar to not be blind sided if the asset price reverses. Adversity for this speculative asset still exists. 1) The psychology If we look at the psychological component of bitcoin and how it's being driven/portrayed, bitcoin has been piggy backing on the principles and appearance of Gold, unable to stand its own ground with its own identity. I'm trying to compare bitcoin to gold in terms of psychological penetration for value perspective. For bitcoin to claim TO BE digital gold, it has to pass and survive through different economic cycles and markets, as well as attain mass cultural and economic adoption. Until it passes through its tests and cycles to further validate its existence and thesis, it is a speculative ride. More like fools gold until it proves itself to weather all these risks. Once that occurs, then it can emulate the value of gold as being its digital equivalent. It is not there yet, objectively speaking, that cannot be denied. This is a matter of objective analysis, not driven by any desire for a specific price action. Look also at how it shows itself online as having the appearance of a gold coin. That is validation of the bitcoin ecosystem trying to make bitcoin appear like something it has factually not yet established. It makes bitcoin look like a marketing game more than anything else. Trying to benefit from the physical appearance of Gold, even though it has no physical form, a little conflicting. Why can't bitcoin have its own identify? Why does it have to use the subconscious value of gold for it to be validated? It should find strength on its own. Is that not reasonable of the expectation for an emerging new asset? Bitcoin is thriving off perceived value, not true value. Bitcoin needs internet connection, implying a dependency on technology and natural resources to allow Bitcoin to exist and be held on devices and so on. There seems to be a human desire to always deviate from natural reality, which in my observations always yields undesirable outcomes. There is also a huge psychological flaw I am seeing growing, where people are using the adoption of companies allowing bitcoin as a means of payment on their platform as a value booster for bitcoin. The flaw in this is that it would require people to use it as a currency to actually pay for things/buy from companies for this to validate its value. People aren't using it for that, therefore these actions of allowing bitcoin doesn't add value unless it were for that purpose. So if we simply analyze the way bitcoin users engage with it, we then see it more as an asset, not a form of payment. That diminishes the fundamental value proposal of companies allowing it as a form of payment, since no one is going to use it for that, at least not currently since people are hoping to make it rich instead. 2) Political Risk/Centralized planning Socialism by nature requires centralized planning, which means control over the market to ensure it controls how it sees best to allocate resources, hence centralized. This applies to also having control over the economy which is where the market (the people) have the greatest power to control the collective outcome through collaboration with their accepted means of exchange. If 2020 and still into 2021 has taught hopefully anything enlightening to many, is the clear observation of the amount of control and power over the people and their dynamics the government has. That is centralized planning within the market place, as businesses, workers and consumers should typically produce the desirable dynamics/outcomes, and not the central planner. Now that we've established this centralized reality of our ecosystem, that risk is also expected with bitcoin or crypto. As they behave with a state knows best and centralized planning framework, they desire to control the pieces on their board, the premise of military framework. That is why they still utilize Keynesian economics to fuel this new modern day theory type of economic philosophy in the central banks and government. This requires them to control the variables in the short term to produce short term monetary confidence; look at their fixation on the utilization of GDP and unemployment as their favorable metrics. Using the printing press, they can subsidize employee salaries of businesses not even operating or give new money supply through welfare, EI, CERB, unemployment. They can create the appearance of strong GDP in the short term by printing, and giving money to people to spend. But this doesn't produce productive expenditure, which is the only true way of expanding the economy efficiently and sustainably. Having said that, knowing they behave this way all over the world, how can we so naively assume they wont find a way to squeeze their political and regulatory grips all over Bitcoin? How do we know they wont push it back into the dark web, like China is doing to implement its own digital coin? - https://news.bitcoin.com/big-banks-big-troubles-hsbc-deutsche-societe-and-citi-lay-off-thousands-worldwide/ If USA does one of their own, they don't want to have competition. Plus there's a significant possibility that a significant percentage of all bitcoins are owned by a small group of individuals validated by the ledger. That puts the confidence of the markets currency in the hands of unknowns who can easily impact massive volatile swings in the price. That isn't good if we want it as a currency. Again, from a central planning POV, doesn't seem logical to allow this to dominate or thrive the way they want it to. Governments will do whatever it needs to do, to minimize risks within their plans, especially with the geo-political and social-economic issues occurring globally, and growing. With how much debt and fragility that exists in the global economies, they need to be very careful with how they let the market bring unpredictability to attaining their desirable and "controllable" outcome. Governments can say it doesn't accept it as tax payment. It can also prevent banks from allowing it to be processed or stored with insured protection like regulated fiats. This means the default fiat or form of money will be what it can control and regulate. That is until the very framework changes, which simply the people adopting bitcoin doesn't change that centralized planning reality. This framework currently empowering political power over the market place exists in all 3 major continental economies; North America, Europe, Asia. That is a huge uphill challenge that may not produce the outcome we think, in the face of political and monetary forces. The banking system works on loans, and it is regulated by the government, so yet again another place where most of the money supply comes into the market comes in as regulated fiat. Investing, paying taxes, having a bank account, getting loans; all places of exchange that requires the accepted regulated fiat. Free market having economic power means no political power, therefore no centralized framework. It's 2021, and all of the world’s major governments are deepening and demonstrating their power over the market, clear as day. So this is a massive risk because to control the outcome especially when it's all about votes in the midst of all sorts of chaos (politically, economically, socially), you can't possibly assume a positive development. There is too much unpredictability, that is asking for more chaos in a already massively chaotic present reality. There is no supporting action to validate that it will certainly turn out as the bitcoin holders desire. We are more likely to see governments try and control the crypto ecosystem, to ensure they minimize their risks, after all they do it with everything else. Therefore it would seem as though it's naïve to assume otherwise, after witnessing 2020 and the start of 2021. I don't know why those who talk about bitcoin being decentralized as such a beautiful value to it when the system is more likely to want to control it, then not, that is centralizing it into a political framework. Doesn't seem very outside the system if it depends so heavily on the system to grow its market cap. Extra Sources - “Digital Gold” and Geopolitics: Bitcoin as a Political Risk Haven (forbes.com) - Effects of the Geopolitical Risks on Bitcoin Returns and Volatility | Request PDF (researchgate.net) - This Is Who Controls Bitcoin (forbes.com) - Bitcoin’s Network Operations Are Controlled by Five Companies - Bloomberg - Regulation of Cryptocurrency Around the World (loc.gov) - Is Bitcoin the Answer in a Financial Crisis? (thebalance.com) 2) Monetary point of view/ Currency or asset? From a monetary and economic POV, to allow an asset (since it is being held like an asset not a currency) to be utilized in the ecosystem as a primary currency, is just confusing when trying to observe the intent in relation to what is actually being done with bitcoin. We need to ensure that what we implement is reliable and dependable, or else we are attempting yet again another experiment, which is what the government did when it went off the gold standard and now look at the economic disaster we are in. Human ego and greed allowed to deviate the collective from natural and sustainable progression, seems to cause so much social economic chaos. Also, as a form of currency, it would be equivalent to a fiat since it is not backed either. Another conflicting argument that is made about it. The hedge against fiats is also a fiat, the only difference is that it is a digital fiat. This is why I believe in bitcoin if it is backed within a monetary framework that makes sense, because things that are not backed in the modern age of monetary theories, are at almost certain risk of greed and/or human ignorance to be abused. Being backed helps to alleviate those psychological risks. How the collective operates should be founded on principles of reality to ensure sustainability, a logical desire to minimize consequences on the collective. So that is another monetary argument often used that doesn't appear to make much sense to me. It is as thought human desire for price action to make money has taken the purpose of bitcoin on a different route than its original intent. Remember also, for an ecosystem to utilize a standard form of exchange, there needs to be predictability in the price of bitcoin, and it cannot be volatile like it currently is. How do we create a proper system of exchange with something like bitcoin that changes price by multitudes of % on a daily basis? Doesn't seem very logical. The economy cannot exchange goods and services with that volatility. It also has a slow transaction capability which fuels the risk of what happens if there is a better improved version Bitcoin 2.0 that solves that problem? Mass exodus to 2.0? It needs to be stable as a means of value for it to be utilized as desired. Why isn't the focus on how to actually implement it and make it a relevant currency that can be utilized? Shouldn't we focus more on the actual utility of it rather than the price action? Greed appears to be driving this more than anything else. Forking bitcoin into new branches can easily be done and centralized, basically replicating the dilution of money supply. So even if bitcoin itself is finite to 21 million, the crypto ecosystem can expand and fork in countless possible ways. So, theoretically, that finite component can be circumvented, by constantly forking bitcoin into new forms, which would only devalue bitcoin itself. The entire crypto space is at heavy risk of this possibility since there are limitless possible new coins that can be created. And would be insane to back a digital fiat by another fiat. That's absolutely redundant. This does not solve the fiat issue. When you look at social media, the very community also mocks and laughs at those who use and or used bitcoin as a means of exchange (like its supposed purpose) for payment. Isn't that the whole purpose of it? Yet they create a sense of don't ever sell just hold, well then when will anyone actually use it as a currency when using it as a currency seems wrong within the crypto community. Seems more like greed for price action than about the beauty of its utility. That also expands the negative gap within the fundamental framework of bitcoin. People want it to be an asset while arguing monetary purposes. Its conflicting logic and only brings more unknown to the outcome of this asset. And I call it an asset because people treat it that way. Is bitcoin and what it is currently versus its original purpose a risk we are yet again willing to take? If you say yes, is that an objective stance or a desire? Does it make sense for the collective when we already have so many problems? Extra Sources - (PDF) Bitcoin - Asset or currency? Revealing users' hidden intentions (researchgate.net) - Bitcoin Is An Asset, Not A Currency (forbes.com) - BitcoinAsset?.pptx (nyu.edu) 3) Storage of Value (SoV) Proposal For this section we will utilize references directly from Bitcoin.com to highlight the very plausible argument for this value proposal: "Over the last few years, many have claimed that bitcoin core (BTC) has turned into, or will soon become, a store of value (SoV). Proponents of the BTC-based SoV theory seem to think that money can somehow store value and if it’s held long enough, the price will be higher or predictably useful when spent at a later date. This is an economic fallacy however because money cannot store value and, as innovative as bitcoin is, it will never be immune to market influences. There are a ton of people who believe that BTC is a store of value and that if they keep hodling someday they might be super wealthy and protected from the world’s turbulent economy. Except this couldn’t be further from the truth. BTC is not an SoV currently, and never will be due to the fact that money itself cannot be an SoV. The idea that money cannot serve as a store of value has been written about by many economists over the years including Carl Menger, Murray Rothbard, and Ludwig von Mises. Carl Menger (1840-1921) was the founder of the Austrian school of economics proper. Menger was one of the first economists to explain in detail about the relationship of value and money to market prices. Menger writes in Principles of Economics: Value is … nothing inherent in goods, no property of them, but merely the importance that we first attribute to the satisfaction of our needs … and in consequence carry over to economic goods as the … causes of the satisfaction of our needs." - https://news.bitcoin.com/putting-an-end-to-the-bitcoin-store-of-value-fallacy/ 3) Sustainability Risk “Currently, the tool estimates that Bitcoin is using around seven gigawatts of electricity, equal to 0.21% of the world's supply. That is as much power as would be generated by seven Dungeness nuclear power plants at once. Over the course of a year, this equates to roughly the same power consumption as Switzerland.” “Mr de Vries said that Bitcoin still appears to use far more energy per transaction than all the world's banks put together, when considering the amount of energy used by data centres. The electricity used for Bitcoin produces about 22 megatons of CO2 annually, a study in the scientific journal Joule estimated. That is as much as Kansas City in the US.” - Bitcoin's energy consumption 'equals that of Switzerland' - BBC News Published 3 July 2019 Cambridge Bitcoin Electricity Consumption Index - https://cbeci.org/ - https://digiconomist.net/bitcoin-energy-consumption As of Jan 14, 2021 Theoretical lower bound: 4.86 GW - 39.39 TWh Estimated 13.73 GW - Annualised consumption 111.27TWh Theoretical upper bound: 32.58 GW - 263.97TWh "Bitcoin may be a useful way to send and receive money, but cryptocurrency isn't created for free. The community of computer-based miners that create bitcoins uses vast quantities of electrical power in the process. The electricity-heavy process has led some experts to suggest that bitcoin isn’t an environmentally friendly endeavor. So how much electricity does a bitcoin take to produce? Written testimony presented to the U.S. Senate Committee on Energy and Natural Resources in August 2018 claims that bitcoin mining accounts for about 1% of the world's energy consumption." "If this information is correct, the bitcoin network in 2020 consumes 120 gigawatts (GW) per second. This converts to about 63 terawatt-hours (TWh) per year. This staggering amount of power is the equivalent of 156 million horses (1.3 million horses per GW) or 49,440 wind turbines (412 turbines per GW) generating power at peak production per second." - How Much Power Does It Take to Create a Bitcoin? (thebalance.com) Sustainability is becoming more and more an important variable in human actions in order to ensure we are more balanced with our natural world. It is something humans have neglected for a long time, having disconnected from nature and their relationship to the natural world. If it is an important factor in our development forward, then we need to look at bitcoin from a sustainability POV to ensure it falls within acceptable parameters of our desired intent. Greed and desire for wealth cannot deviate the objectivity of our desired outcome as a collective. We can argue for sure, let's create a renewable source of energy to produce what is needed for the bitcoin ecosystem, which only demands more energy as it expands and becomes harder for bitcoins to come into existence. The flaw I can see in this is that, how much land are we willing to permanently use up in order to ensure this ecosystem exists indefinitely? Because if the ecosystem needs energy indefinitely for it to exist, then we are not allowing the land to replenish. When compared to gold for example, once the gold is mined and extracted, no extra energy is needed to keep it into existence. Gold has a one time cost, and once the land is done being mined, we can nourish the soil and seek to give it back to the planet to heal and replenish new minerals and life for the future of the planet. Our actions need to be aligned with the timeline of humanity beyond the years we are in existence. Beyond our own existence. To be sustainable, one must think linear into the future beyond the parameters of one's personal life span. Greed thrives at the personal level which makes one ignore time beyond their lifespan. Does bitcoin pass this test of sustainability? To answer this, the price of bitcoin and personal desire for wealth from it has to be put aside, and objectivity to the purpose of this question must be given. Extra Sources - Bitcoin Mining Energy Usage: The Good, the Bad and the Future (coincentral.com) - Bitcoin Energy Consumption Index - Digiconomist - (PDF) Energy Consumption of Bitcoin Mining (researchgate.net) - Cryptocurrency Energy Consumption | Energy Institute (umich.edu) 4) Time & Depression Resistance This risk breaks down into 3 factors that don't appear to be accounted for. 1 - Will bitcoin survive time? An 11 year story is not very much evidence that it can pass the test of time. For context, its rival Gold for example has 6000 years of history and purpose. It has been at the side of human civilization expansion, so we know it is reliable, it has history to validate this, alongside universal acceptance, 2 - Will it survive the transition of wealth between generations? Because the psychology of generations is heavily impacting the adoption of bitcoin and other cryptos, what says that very psychological adoption is also not a risk that could cause a future generation to say they rather their own version of a crypto they feel more connected to and believe is not owned by the older generations, since the clash between youth and old seems to be an old tale. Since this asset or currency, whatever you wish to call it for now, is so easily driven and influenced by perceived value. That can easily change. Its current baseline is one based on pure psychology; greed and fomo. 3 - Will bitcoin survive a plausible depression occurring in North America and all over the world? This is also a very important risk not being mentioned. In a depression, people struggle financially and debt also becomes a significant issue. The question becomes, does bitcoin survive in a depression environment which is not a macro environment it has yet to experience. If it collapses in that environment, then it holds as a risk asset correlated to the debt expansion of the ecosystem. If it could hold true and strong through that environment, especially with the potential deflationary environment, then this could be a significant fundamental boost. To be determined soon enough. 5) Hacking & Theft I myself am not a tech wizard, and this specific risk is very real. It posses a risk to the adoption of bitcoin. This could drive people to only wanting exposure to bitcoin within financial products created by institutions, which solidifies it further as an asset and less so as something that could be used as a currency, which is the original thesis and value proposal. Also, makes the coin more and more centralized in the very system that it seeks to be outside of. Stealing the private keys to gain access to a wallet. - "Blockchain, the Bitcoin public ledger, maintains a record of all the addresses and a certain value is then attached to the particular key that identifies each record. So, when someone owns Bitcoin, what they actually have is the private key for unlocking a particular address on the Blockchain. These keys are stored both online and offline in so many different ways and each of them has a certain security level. Nevertheless, they all are vulnerable because, as you want to know how to hack a Bitcoin wallet, all you have to do is to somehow access that character's string which forms the private key." Keyloggers: - "It’s the malware that records the keystrokes of the users and sends it all to the hacker. It is almost impossible to detect these programs and you might even have it running on your smartphone or computer right now without noticing it at all. They copy every seed, password and pin that you type and can turn out to be an effective answer to the question of how to hack a Bitcoin faucet. They can really provide hackers an easy gateway to all the bitcoins they want to hack." Fake wallets: - "Another cool option you have to answer how to hack Bitcoin wallets, this one gives you a more sophisticated way of achieving your goal. It also needs you to do some work on your part as these fake wallets are simply the apps which resemble genuine wallets but are meant to steal the Bitcoins away. These apps typically use official logos and everything else of existing Bitcoin wallets for tricking the users and stealing the Bitcoins away. These fake wallets are a routine thing both on Apple and Android App Stores." Bitcoin miner malware. - "Today, Bitcoin is simply mined through the biggest Bitcoin malware botnets. Though they don’t have any negative intentions, still the use of a computer this way is not authorized as they tend to hijack the online video equipment and the victim bears all the cost. As a result, the hijacked computers are also slowed down as well." Transfer Trojans - "Another option available to those looking to find out how to hack a Bitcoin address is to transfer Trojans and simply get Bitcoins transferred to their personal wallets. The cryptocurrency Trojans are meant to monitor computers and wait for anything that looks like a crypto account number. And, as soon as they spot one, they take action and replace the user’s intended account from that of the hacker and as soon as the user hits that ‘Send’ button, all the funds are transferred to the account of the hacker. Again, there’s no recovering from this either." https://u.today/guides/blockchain/how-to-hack-bitcoin-all-possible-ways#:~:text=%20How%20to%20Hack%20Bitcoin%3A%20All%20Possible%20Ways,option%20is%20to%20rely%20on%20some...%20More%20 6) Innovation The very innovative nature of technology is a threat to the continuity of bitcoin, for it is primitive in the face of technological advancement. With it being 11 years old only, it could find a new and improved bitcoin version in a decade that steals all the attention away, since its value is based on to the incredible tech that is blockchain, which is innovative by nature. Therefore innovation itself is a risk to this primitive digital coin. Well then logically speaking, if we maintain that thesis, we should seek to allocate the capital to the new and improved version, not simply hold it for sentimental purpose. That is a threat moving forward. Based on tech in a world where human are obsessed with innovating tech (diminishes the utility value purpose of the original bitcoin), therefore, the very nature of what makes bitcoin so incredible is also what could make it obsolete. That's a significant risk. @nictartaglia come discuss this with me come challenge these risks with me
- Bitcoin: Part 1 of 2 - What it is & its Original Thesis
General Breakdown You may have heard about bitcoin and all its volatility, but does anyone really know what bitcoin is? Beyond what it appears to be or do? If you check the bitcoin website itself; www.bitcoin.com - as a starting point on this learning journey, it would say “Bitcoin is an innovative payment network”. In the simplest of terms, bitcoin is a software, a set of protocols and processes which enables a new form of trustless electronic payment. So in an even simpler form, Bitcoin is a super precise transaction ledger able to keep transactions categorized chronologically, which then goes through a mining process which validates each transaction without the need of a third party. This is without a doubt innovative and of extreme relevance to minimize external parties to a simple transaction. "We define an electronic coin as a chain of digital signatures. Each owner transfers the coin to the next by digitally signing a hash of the previous transaction and the public key of the next owner and adding these to the end of the coin. A payee can verify the signatures to verify the chain of ownership. The problem of course is the payee can't verify that one of the owners did not double-spend the coin. A common solution is to introduce a trusted central authority, or mint, that checks every transaction for double spending. After each transaction, the coin must be returned to the mint to issue a new coin, and only coins issued directly from the mint are trusted not to be double-spent. The problem with this solution is that the fate of the entire money system depends on the company running the mint, with every transaction having to go through them, just like a bank. We need a way for the payee to know that the previous owners did not sign any earlier transactions. For our purposes, the earliest transaction is the one that counts, so we don't care about later attempts to double-spend. The only way to confirm the absence of a transaction is to be aware of all transactions. In the mint based model, the mint was aware of all transactions and decided which arrived first. To accomplish this without a trusted party, transactions must be publicly announced, and we need a system for participants to agree on a single history of the order in which they were received. The payee needs proof that at the time of each transaction, the majority of nodes agreed it was the first received. " - https://bitcoin.org/bitcoin.pdf (original White paper of Bitcoin) The blockchain, while used in a decentralized manner allows for transactions to take place with no third party needed. Instead of a bank or financial institution confirming your transactions, it would be a bitcoin miner validating the transaction over the internet. Bitcoin miners run complex computers to solve complicated puzzles in an effort to confirm groups of transactions called blocks; once the block is successfully confirmed, these blocks are added to the blockchain record which in turn make them irreversible. The minors are then rewarded with a small amount of Bitcoin for this process. This provides incentives Miners who secure the Bitcoin blockchain get incentivized to do so, but there will come a time that the miners will no longer be able to be paid in new bitcoin. A set amount of 21 million Bitcoin will ever be produced. Once the 21 millionth bitcoin is produced the miners will no longer be getting paid in new bitcoin, but will be incentivized via the transaction fees attached to the transfers of bitcoin from wallet to wallet. Now this is good for two things. Number one the miners will be paid to continue being rewarded for validating transactions (this allows for indefinite securitization) after the mining is done which in turn secures the network indefinitely. Secondly we have the scarcity component. In the case of Satoshi’s vision for bitcoin, the scarcity aspect of bitcoin has no advantages hence why in the original white paper, there is no mention of scarcity or total mention of bitcoins. In my opinion, I think particularly because the fact that there are 21 million bitcoins is the reason why there will not be mass adoption of the crypto. If you’ve ever bought fragments of a bitcoin you’d know that it is very complicated to calculate your exchange only in Bitcoin. That's why most apps or websites of exchanges have it pre-set in fiat so it is easier/clearer to perform a bitcoin exchange. But now, if you were to look at bitcoin as a storage of value (SoV), the scarcity aspect can help induce people to buy the coin; rarity which drives human desire and psychology. Beauty is something that respects the law of scarcity. A purely psychological benefit if bitcoin we’re to be used as a storage of value instead of a means of exchange. This Bitcoin network runs on something called the blockchain. The blockchain is a protocol that consists of a single chain of discrete blocks of information, arranged chronologically. The information stored on the blocks are irreversible and can be any string of 1’s and 0’s, meaning it could include emails, contracts, land titles, marriage certificates, or bond trades. In theory, any type of contract between two parties can be established on a blockchain as long as both parties agree on the contract, but for now the most common use of the blockchain is as a ledger (a list of transactions). So no one should be able to deny the future power of this innovative ecosystem, for this has given us a stepping stone on which to begin the optimization of contract and payment dynamics. Since bitcoin is decentralized, in the sense it simply needs the peers who seek to exchange and the blockchain to validate the transactions. There are no central banks to govern the currency. It would help stop artificial inflation and allow for a slow organic inflation (assuming forking and other cryptos do not get bundled up which creates an expanding and diluting basket of cryptos). Original White Paper Thesis Let us now bring it back to its origins to contextualize its original thesis. Bitcoin was created by some character named Satoshi Nakamoto. Back in 2008 Satoshi published something called the Bitcoin White paper - https://bitcoin.org/bitcoin.pdf . This white paper explains what bitcoin's original thesis by its creator is, how it works and what its main uses are to be. This gives us the starting point of our journey into understanding bitcoin. “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.” That is the first sentence of the paper, which means that Mr. Nakamoto intended Bitcoin to be used as some sort of global currency, to provide a simpler and more efficient and trusted means of exchange. This is where we can conclude that a lot of people get confused with the original value of bitcoin. If bitcoin was intended to be used as a currency, why is the motto in the crypto world HODL? And why do people expect crazy price targets of 100’s of thousands of dollars which is the desire of an asset price inflation, not a currency? Bitcoin may reach those prices because anything is possible in these new markets, but is that really sustainable for the actual job it was intended to do? In my opinion, I think not. This negative analysis will be narrowed in more depth with PART 2 of this Bitcoin piece. Looking at bitcoin and its innovative solution is not something anyone should toss aside, for it is a significant value proposal. But how we choose to approach that proposal is up to us based on how we interact with it, within our collective ecosystem. Another benefit of bitcoin being used within the perspective of a currency is if you try to compare it to the euro, you see the euro unites a singular geographical location with many intersecting trade interests. This currency unification lowers barriers to trade amongst its members but also allows for the sharing of social/economic/political risk. For example one EU member nation is experiencing deflationary house prices and the neighbor country’s house prices are skyrocketing. The euro helps dampen the burden on the member nations affected. The pioneer of this theory, Robert Mundell explains it brilliantly in this quote,“ A harvest failure, strikes, or war, in one of the countries causes a loss of real income, but the use of a common currency (or foreign exchange reserves) allows the country to run down its currency holdings and cushion the impact of the loss, drawing on the resources of the other country until the cost of the adjustment has been efficiently spread over the future. If, on the other hand, the two countries use separate monies with flexible exchange rates, the whole loss has to be borne alone; the common currency cannot serve as a shock absorber for the nation as a whole.`` -https://cs.stanford.edu/people/eroberts/cs201/projects/2010-11/DigitalCurrencies/economics/index.html “First, Bitcoin at its most fundamental level is a breakthrough in computer science – one that builds on 20 years of research into cryptographic currency, and 40 years of research in cryptography, by thousands of researchers around the world. Bitcoin is the first practical solution to a longstanding problem in computer science called the Byzantine Generals Problem. To quote from the original paper defining the B.G.P.: “[Imagine] a group of generals of the Byzantine army camped with their troops around an enemy city. Communicating only by messenger, the generals must agree upon a common battle plan. However, one or more of them may be traitors who will try to confuse the others. The problem is to find an algorithm to ensure that the loyal generals will reach agreement.” More generally, the B.G.P. poses the question of how to establish trust between otherwise unrelated parties over an untrusted network like the Internet. The practical consequence of solving this problem is that Bitcoin gives us, for the first time, a way for one Internet user to transfer a unique piece of digital property to another Internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer. The consequences of this breakthrough are hard to overstate.” - https://dealbook.nytimes.com/2014/01/21/why-bitcoin-matters/ "The scripting language can also unlock transactions based on other parameters. Unlocking them over time can enable automatic mortgage, trust, and allowance payouts. Unlocking them on guessable numbers creates a lottery auditable by third parties." - https://nav.al/bitcoin-the-internet-of-money Extra Reading Sources https://dealbook.nytimes.com/2014/01/21/why-bitcoin-matters/ Original White Paper PDF - https://bitcoin.org/bitcoin.pdf www.bitcoin.com https://sevenfigurepublishing.com/2014/02/11/bitcoin-the-whole-story/
- Part 1 of 3 - Gold's Existence Within The Expansion of Human Civilization
This piece serves the purpose of attempting to contextualize humanities economic and monetary expansion in relation to gold. Part 2 and 3 of this 3 part piece are formed as a sort of jenga puzzle with dates and historical text from a variety of sources (listed at the end), all intertwined in chronological order to provide as much debt to this dance played between humanity and gold. This should help to facilitate the understanding of humanities economic expansion, by having a common standard means of exchange respected by humans throughout cultures and time. There lays its value, to prevail regardless of time and place. The introduction & philosophical analysis In business, when someone or something serves a purpose with very little downside risk, and can allow reliable delegation of certain tasks, it more than not allows an economic entity (a person, a business, a nation), to optimize and or expand their output. Either way, it is a win win, for both the business and the stakeholders win (consumers, employees, investors), from better services, prices, salaries, profits, therefore it is a no brainer to employ that individual or incorporate that system/framework towards that achievement. It does exactly what you want it to do, therefore the business' mind can focus more on weighing other variables that need its attention. Even from how we focus on our mind, as individuals or as a collective, it respects the principles of scarcity, we can only focus on so much at a given time. It appears we are always incurring drastic chaotic cycles with a lot of social conflict from our monetary deviations, from centralized egos. An old tale of history. This can allow any economic entity to enter a spear form of framework to penetrate and expand the way it desires. Like genes as they get passed on, that pick up and incorporate strong genes for the purpose of strong continuity. A very reliable part of natural law for natural expansion. If life itself is an economic game of producing, consuming and allocating resources (physiological or tangible), for all nations, businesses and persons, then incorporating those very dynamic truths into our collective economic framework is not flawed. Economic alignment is necessary among the countless frameworks of entities that are consciously and unconsciously playing this game. That makes it a very dynamic and complex game. So why not adapt behaviors/frameworks/pillars that we can depend on despite those difficult truths of the game. Being rational is very much about respecting natural law, since it dictates the very reality and parameters of our conscious lives. This ties in to the principle ideology of a 'homoeconomicus' is: -"Homo economicus is a financial term that some economists use to describe a rational human being. Homo economicus is a model for human behavior, characterized by an infinite capability to make rational decisions. The model is generally used in economics and was first proposed by John Stuart Mills in an 1836 essay defining the characteristics of political economy. Modern research has proved that the theory of an economic man is a flawed model." -Homo Economicus Definition (investopedia.com) This requires a malleable framework, since that is rational at the same time. This is to be as Bruce Lee so beautifully said; “you must be shapeless, formless, like water. When you pour water in a cup, it becomes the cup. When you pour water in a bottle, it becomes the bottle. When you pour water in a teapot, it becomes the teapot. Water can drip and it can crash. Become like water my friend.” Water with enough energy (pressure) asserted on it can also become deadly like a spear piercing through flesh. What natural law tells us is time doesn't stop, and because nothing is fixed like time itself, everything changes, and therefore malleability is an important component of a dynamic natural ecosystem. The expansion of humanity and its collective consciousness, shows nothing but change from constant clashing egos and realities. It is rational to always assume and expect change. Using gold to anchor our economic behaviors appears to be a dire solution that diminishes the ability of human ego and ignorance to thrive and cause sustainability problems witnessed throughout the history of civilization. Gold is like an anchor to all that dynamic change, economically speaking. 6000 years of history demonstrates a beautiful story that provides an old progressive solution to a very relevant problem. Let's make use of it so we can go solve other problems that plague our system. Now having established that rationale, respecting natural law, if we observed the relationship gold played with humanity, we see a positive correlation...lets take that further now. If that has always been humanity's most reliable form of exchange that provided sustainable value until the mid 20th century of our globalized expansion, then why is any human trying to apply their personal desire of altering that very truth? Seems like ego rather than anything else, another old tale of history. Gold has been loved, desired and utilized across time in correlation with our expansion. That makes it incredibly reliable by simply back testing our history. It also makes it a mean (average) baseline off which humanities economic expansion can occur. It provides a constant baseline off which natural wealth can truly expand. This is a key dynamic relationship towards having a viable, flexible and sustainable expanding economy. Sure sounds a lot like what a rational mind would incorporate into their framework to ensure optimal output. Would seem rational for a trusting and functional global economy, with so many dynamic variables, such as all the social problems it has, to trust a monetary framework that has pierced through time alongside us. Every time people deviated from it, it was in my opinion heavily from the centralized personal interest of a select few; greed, to obtain something more for the benefit of the few, at any cost. Human suffering most often than not appears to be that cost that history keeps trying to teach. Bon, that's history, we are now in 2020, whatever our ancestors past digressions were, nothing but a lesson can be picked up from it’s tale. That's what a rational civilization must do, be flexible like water. This is where also lays the power of a free market, respecting these principles. These are what yields sustainable behaviors, as a collective, providing an ecosystem framework that trickles down to its very operators (the citizens, who’s collective actions dictate the collective output). The stakeholders can truly benefit on a collective scale. Sustainability is very much part of that since humans cannot over indulge from the abuse of monetary egos that deviate a nation to their whim. Can be correlated, to the expansion of the consumeristic reality leveraged off the debt from deviations in economic truths. . It would be useful for establishing how far off a nation's economy can deviate from its baseline wealth and truly take on debt. Bring some sustainability to our consumerist framework. Again, a possible natural solution to a behavioral problem plaguing our reality. The argument isn't that we can’t find a better way to improve our globalized dynamic monetary system, or that gold is the only forever answer and so ignore everything else. Not at all. Simply, why not find a way to play off of something that is reliable, that creates like in technical analysis, a strong resistance from which the price can increase (economic expansion). Far less down side economically and socially speaking since we know it works, when so much isn't working. Let us finally move on. From an optimal perspective, it serves the purpose. I do accept the idea of bitcoin being backed by gold or a basket of metals, it seems more logical as a system to expand sustainability leveraging what works. Or would you rather continue the game of experimenting with economies which history shows it always has untold and unintended consequences. From a healthy and sustainable point of view, it doesn't seem to be an irrational idea to incorporate the principles of water which is shapeless yet also capable of acting like a spear; the desire of our economic expansion.
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